Posts Tagged iron condor

Do Traditional Option Income Strategies Really Work Anymore?

New and Popular Trade Strategies with Options: How They Hold Up

Time is the biggest difference between trading low-risk option strategies and the popular income strategies.  Their recovery times from drops in the market are very different. For example, due to a recent “computer glitch”, anyone trading Iron Condors as an income spread lost about fifty to seventy percent in that two week period. When you think about it that means it will probably take about ten months or more than a year for them to make their money back. Chances are most traders won’t be able to recover from this debacle.

For those who were using the low-risk Broken Butterfly strategy, they may have only lost between one to five percent max, if they were doing them right. Personally, I experienced about 2.5% drawdown over that period. This makes the difference rather obvious. When things go bad, they really only go bad for those trading the popular income options strategies.  Strategies such as Iron Condors, Calendar Spreads, Covered Calls, Credit Spreads, and Near-The-Money Butterfly spreads were devastated by the recent “computer glitch”.

If you were trading Broken Wing Butterflies, you were much better off.  Some didn’t have any drawdown at all. Any who did were able to manage the losses so that they could stay in the game. Those of us doing low risk strategies were fortunate enough to make back our losses in the following month. Those trading the popular income strategies will probably never make their money back, but the sad truth is, they will keep on trading the same old, out-dated income strategies that may have worked 20 years ago, but not in today’s world.

This “glitch” was the perfect example of why I, myself, don’t invest too much money in the popular option income strategies.  It’s all a little too risky for my taste.  I’d prefer to make my money slower without experiencing any of the massive losses the aggressive income traders must face every year. To me, it makes more sense to protect what I have and to take whatever the market gives me. This way I know, in the long run, my option trading plan will work out much better.

Over the last few years, I’ve reworked the popular option strategies so they could initiate with lower risk.  I have a different method to trade Iron Condors that is much safer than the popular Iron Condor.  I’ve also developed Broken Wing Butterflies and Unbalanced Condors that have become some of my favorite overall trades.  I like that I can initiate a trade with a mere two percent risk, then soon after I am in the trade, I can take off the risk almost entirely in most cases. This pretty much means I have trades that are almost risk free consistently in my portfolio.  This is a great way to trade options.  The only way I could ever lose on some of these trades is if the market was to drop over seven percent in one day, but if I’m loosing money, that means all those doing popular option spreads will be left with nothing at all.  Even in the most extreme situations my strategies have proven much safer than anything I have seen before.

For more information about low-risk option strategies, visit San Jose Options Mentoring